What's behind the recent increases in CAUV?

*UPDATE: Since the production of this video, hay has been reomoved from the calculation of CAUV values. 2012 update: OFBF staff have created a new video to explain CAUV.

Buckeye Farm News

Some rural landowners may be surprised when discovering their latest CAUV (Current Agricultural Use Valuation) values have increased some several hundred percent over the last three years.

Established in 1972, CAUV allows qualified agricultural land to be valued at its current agricultural use value for real property tax purposes rather than fair market value.

While Ohio Farm Bureau Federation (OFBF) Senior Director of Local Affairs Larry Gearhardt said many are upset over the increase, he asserted there is no problem with the formula used to determine CAUV.

“Its purpose is not to guarantee the lowest values for landowners, but to accurately reflect what is happening in the farming community,” he said.

He said the same formula gave Ohioans the lowest values in CAUV history in 2005, which is one of the reasons for the increase. After hitting the bottom in 2005, 2006 values went up slightly, but now values are trending back up. “It doesn’t take much of an increase to represent a 200 percent to 300 percent increase over those low values,” Gearhardt said.

The calculation of CAUV is based upon a formula taking into account the last seven years of crop prices, crop yields, non-land production costs and capitalization rates to determine the net profit per acre for each of the 3,560 soil types in Ohio.

County auditors are required by law to reappraise every parcel of land in their county every six years to establish the fair market value, while also required to adjust property values (based upon sales of property in the county) every three years. The Ohio Department of Taxation annually determines and sends CAUV values to county auditors, which they then use in years when a county does one of these reappraisals or updates.

Gearhardt said the biggest factor in the increasing land value is an adjustment of crop yields. In 2005, it was discovered that the Farm Service Agency hadn’t adjusted its crop yields data since 1984. The implementation of a system to adjust to current yields starting in 2006 led to an increase in CAUV value.

In addition, the capitalization rate has decreased. Since formula values are divided by the capitalization rate, a lower rate equates to higher land values.

According to Gearhardt, some of the dramatic increases come down to timing. “There is a lag time in how some of the values are calculated,” he said. “It takes two years to collect the costs of growing, so the high fertilizer costs from last year are not included in this year’s valuation.”

Despite the increase in values, he said it’s still the best thing going for rural landowners, noting it’s an 80 percent reduction of fair market value.